Consolidating Koc


Economic News

22 Jul 2010
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One of Turkey's biggest corporations has flagged a major shake-up of its operations, looking to consolidate its core activities and divest peripheral interests in a drive to improve profits and build up capital for future investments.

In late May, media reports began to circulate that Koc Group, an extensive collection of companies controlled by one of Turkey's richest families, was planning a massive restructuring of its operations.

Established in 1926, in the early years of the Turkish Republic, Koc Group has long been one of the driving forces in the country's economy, with extensive holdings in the automotive, durable goods, retail, finance, foreign trade, tourism and energy sectors.

However, this broad range of activities is about to be narrowed. On June 18, Bulent Bulgurlu, Koc's CEO, told a press conference in Istanbul, where the group is headquartered, that Koc had become a global company in recent years. As such, it needed to focus on a few key areas in order to increase its competitiveness and play to its strengths, he said.

"Right now, our main fields are energy, durable goods, automotive and financial services," said Bulgurlu.

One of the first steps in this programme of consolidation will be the sale of Koc's supermarket chain Migros. Bulgurlu announced that US-based investment bank JP Morgan had been authorised to investigate strategies to facilitate the divestiture of the corporation's 51% stake in its main retailing network. According to Bulgurlu, the sale will be completed within six to nine months. He said Koc intends to use the proceeds from the sale of Migros to grow in core sectors and to finance acquisitions.

The announcement that Migros would be put up for sale, though not a surprise, did represent a massive shift for the group. Koc had previously released plans to open another 100 outlets across the country in 2007, having opened an average of two stores a week last year.

It is not as if Migros has been performing badly. The chain saw sales increasing by 14% in the first three months of 2007, compared to the first quarter results of the previous year, with $838m coming in through the chain's registers, and consolidated net profit up to $24.5m, a rise of 69%. Current estimates, based on the chain's share price, put the value of Migros at around $2.75bn.

Though solid figures, the returns from Migros represent only a fraction of Koc's overall turnover. The four key sectors that Koc plans to concentrate on brought in 91% of the group's profits of $2bn last year and accounted for 82% of its investment spending. Significantly for a corporation looking to expand its profile overseas, 90% of Koc's foreign earnings came from its durable goods, energy, automotive and financial services activities abroad.

Even before Bulgurlu's announcement, rumours had been circulating that Koc would put Migros up for sale, prompting denials from rival group Sabanci, which operates the Carrefour retail chain in Turkey, that it had made a preliminary bid for the network of outlets.

It had also been suggested that the British retailer Tesco might look to acquire Migros, having opened a series of stores in major cities across the country over the past two years under the Kipa brand name. However, Tesco issued a statement in late May saying it was not in talks with Koc.

The forthcoming sale of Migros also brings into question the future of Koc's overseas retail arm, Ram, which operates around 80 stores and malls in Russia, the Turkic republics and the Balkans. If Koc stays true to its intention of getting out of retailing, its overseas outlets could also be put on the block. So too could the group's tourism investments, including hotels and resorts in the south of the country, and its chain of 10 DIY stores, which trade under the name Koctas.

The programme of divestment has already begun. In late May, Koc announced it was selling its majority stake in air conditioning, solar energy and heating appliance manufacturer Demirdokum to the Vaillant Group of Germany. Like Migros, Demirdokum is a successful concern, turning in profits of $31.5m from a consolidated turnover of $596m last year. However, like Koc's retail arm, Demirdokum no longer fits into the grand vision of the group's future.

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